Ahead of the Curve

The lending environment is undergoing a worrying change. Funds that European direct lenders have raised but not yet deployed are at an all-time high and banks in most Western-European jurisdictions have renewed lending following years of reticence after the global financial crisis, leading to increased competition amongst lenders in the small and medium enterprise (SME) market.

Pension fund alternatives reach €445bn

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GLOBAL - Almost $600bn (€445bn) of global ‘alternative’ assets are invested by pension funds through the world’s top 99 alternative asset managers, a study by Watson Wyatt Investment Consulting has concluded.

That said, the consultancy firm is warning pension funds will find it increasingly difficult to gain value through investment houses and suggests investors have found it more beneficial, in some cases, to buy private equity and hedge fund holdings direct rather than through asset houses.

Data from the Global Alternatives 99 ranking survey reveals the top 30 pension fund managers within real estate, fund of hedge funds (FoHFs), and private equity fund of funds (PEFoFs) managed US$380bn, US$105bn and US$80bn respectively at the end of 2006.

Commodities are still seen as a smaller alternative investment option among pension funds as invested funds amount to just US$12bn in assets.

Roger Urwin, global head of investment consulting at Watson Wyatt, noted, however, given the huge amount of money now flowing into alternative asset classes, pension funds will need asset managers to work even harder to show value and maintain a ‘buyer beware’ mentality .

“As assets flow into these strategies at an ever quickening pace, the ability of some managers to continue to deliver good performance is in doubt,’ said Unwin.

“Once performance fees are included, investors will have to work hard to ensure that alternative assets remain a value creation proposition for funds. Indeed some of our clients have been using the direct route successfully for investing in private equity and hedge funds to reduce fee levels.

“Put simply, it is imperative that the attached management and performance fees, which are significant, are correctly set and managed to ensure maximum benefit for the fund. Caveat emptor should be keenly observed in this area at this time,” he added.

RREEF, AEW Capital Management, ING Real Estate, JP Morgan and LaSalle are revealed to be the top five real estate managers by pension fund assets.

SGAM Alternative Investments was also found to be the largest FoHF manager for pension funds with US$10.4bn of pension fund assets while JP Morgan Asset Management is the largest PEFoF manager with US$13.7bn in assets and Allianz SE tops the commodities bill with US$7.2bn under management.

In total, 150 manager entries were investigated, including 45 in real estate, 57 in fund of hedge funds, 36 in private equity fund of funds and 12 in commodities.

The study looks only at assets managed on behalf of pension funds, so those companies which could not make the distinction between overall assets and pension funds’ alternatives assets were excluded from the findings.

Similarly, pension fund assets in single strategy private equity funds and hedge funds are not counted.